ConocoPhillips Chairman and CEO Jim Mulva got a 25 percent bump in his total compensation to $17.9 million, thanks largely to a performance-based cash bonus, according to an analysis by the Associated Press. So what did Mulva do to receive a $4.3 million cash bonus that was three times larger than the year before? Higher oil prices certainly helped the company's bottom line. But the real reason lies with Mulva's shrink-to-grow plan, a strategy that is still underway.
Recession hits an overloaded company
ConocoPhillips (COP) was a different, much larger animal several years ago. The company had wrapped up a series of acquisitions including Burlington Resources in 2006, which created its fair share of problems.
In January 2009, Conoco announced it would write down $34 billion of previous acquisitions and lay off about 1,300 employees, or 4 percent of its workforce. The situation worsened by the following quarter as lower prices for oil and gas pushed profits down 80 percent from the same period in 2008.
A new strategy
The company had already started to cut costs and increase production, two obvious steps to take at the time. But Mulva took a far more aggressive approach and announced in late 2009 that the company would sell $10 billion in assets over two years. Deals to date include:
- China Petroleum, or Sinopec bought Conoco's 9 percent stake in the Syncrude Canada oil sands project for $4.65 billion;
- Pilot Travel Centers bought Conoco's 50 percent partnership in CFJ Properties - Flying J truck stops for $626 million;
- Lukoil agreed to buy back 7.6 percent of its stock held by Conoco for $3.44 billion. Conoco eventually sold off its entire stake in Lukoil, which had totaled 20 percent and was valued at $9 billion, by February 2011.
Not all companies that shrink are well-poised to grow. But Conoco picked the assets that weren't part of its core business, or sold out of places where it held a small position. Now it's taking the proceeds and reinvesting the monies into stuff that makes sense, namely investing in offshore deepwater drilling in the Gulf of Mexico and West Africa and expanding its shale gas and oil holdings.
BP takes a similar approach
BP clearly took note of Conoco's success. The company plans to sell $30 billion in assets to pay for the oil spill. Its reasoning may be different, but BP management throws out similar shrink-to-grow lingo. So far, BP's portfolio dump has made sense. The company isn't holding a fire sale, and instead has put some thought into the assets that don't fit into its core operations.
Photo from Flickr user AMagill, CC 2.0